The dairy landscape is seeing rapid, much-welcomed improvements as milk markets rallied in May with Class III futures surpassing $20 per hundredweight (cwt), $4 above April’s prices. Coupled with feed costs receding, dairy margins are looking better for the remainder of the year.
Here’s Progressive Dairy’s look ahead at important dates, reports and advice affecting risk management decisions, as well as other information impacting your milk check in June.
Dairy Margin Coverage (DMC) program
The April 2024 DMC margin and indemnity payments will be announced May 31, with the May 2024 DMC margin calculated June 28.
At $9.65 per cwt, the March DMC margin did not trigger a payment through the dairy risk management program. This was the first time since December 2022 that a payment was not issued. (Read: March DMC margin is $9.65 per cwt)
While March was the first time in 17 months without a payment triggered, it is also the first of the foreseeable future margins expected to improve with stronger milk prices and lesser feed costs. As of May 22, the April 2024 margin forecasts at $9.66 per cwt, a cent higher than a month prior. Projections indicate margins above $10 per cwt for the remainder of the year, although markets do change.
The House Agriculture Committee released a draft text for the 2024 Farm Bill, which includes several revisions to the DMC program. Such suggested changes include increasing the cap of Tier I coverage, the ability to update production history and premium discounts for a certain degree of enrollment. (Read: Weekly Digest: House Agriculture Committee releases draft farm bill text)
Dairy Revenue Protection (Dairy-RP)
Producers managing risk through Dairy-RP are eligible to cover revenue quarterly. In June, Dairy-RP coverage is available for the third quarter of 2024 (July through September) through the third quarter of 2025. Coverage for the third quarter of 2024 closes on June 15.
Enrollment for reinsurance year 2024, including quarters one through three of 2025, ends June 30. With enrollment also comes revisions to the insurance program and how yield adjustment factors are calculated based on data from the National Agricultural Statistics Service milk reporting. (Read: Revisions to Dairy-RP to affect upcoming coverage calculations)
The market changes daily and Dairy-RP endorsements must be purchased between the Chicago Mercantile Exchange (CME) market closing and the next CME opening. Dairy-RP is not available on days when applicable futures contracts move limit-up or limit-down, or on days when CME trading is closed due to holidays (see Calendar).
Also, Dairy-RP coverage cannot be purchased on days when major USDA dairy reports that could impact markets are released. This includes Milk Production, Cold Storage and Dairy Production reports.
Livestock Gross Margin for Dairy (LGM-Dairy)
LGM-Dairy is another subsidized margin insurance program administered by the USDA’s Risk Management Agency (RMA).
LGM-Dairy provides protection when feed costs rise or milk prices drop, and can be tailored to any size farm. This program uses futures prices for corn, soybean meal and milk to determine the expected gross margin and the actual gross margin. LGM-Dairy is similar to buying both a call option to limit higher feed costs and a put option to set a floor on milk prices.
Coverage can be purchased on expected milk marketing over a rolling 11-month insurance period. So the coverage period available during the final week of May includes months of July through May 2025.
Sales period for the LGM-Dairy program are open on a weekly basis. Unlike Dairy-RP, LGM-Dairy is available even if a sales period falls on the day of a USDA report. Premium payments are due at the end of the insurance period.
Production and price outlooks
- April U.S. milk production fell 0.4% compared to the same month last year, according to the USDA’s April Milk Production report released May 20. Also, based on preliminary estimates, the U.S. dairy herd is now the smallest since the beginning of the year. (Read: April milk production lower as cow numbers decline)
- The USDA estimates 2025 milk production at 229.3 billion pounds, 2 billion pounds more than 2024’s forecast at 227.3 billion pounds. (Read: Increased cow numbers, milk per cow raise 2024-25 milk production estimates)
- Individual Federal Milk Marketing Order (FMMO) uniform milk prices in April were highest in fluid milk utilization areas and lowest where Class III milk utilization is predominant. (Read: April 2024 FMMO uniform prices mixed)
Check the Progressive Dairy website for updates affecting milk prices as they become available.
